Starting January 1 the federal tax exemption on estates and gifts is set to roll back from $5.21 million to $1 million which could present a problem for heirs if people don’t take advantage of the exemption now rather than at the time of their death.

Many people have argued that estate attorneys and other financial professionals have sounded the alarm before when estate and gift taxes were up for review, but experts are saying this time the alarm should be duly noted. Experts warn that in today’s political and economic climate Congress is less likely to keep the exemption rate as high as it is for very much longer.

One reason some experts are suggesting that people claim their estates now is that if an individual waits too long to begin the process, there is a good chance that they won’t be able to complete the paperwork before the year’s end. In some circumstances, not filing paperwork before the deadline may increase the amount of tax that they pay on their estate thus reducing the amount they give to their heirs.

Because estate planning involves a number of interlocking parts that all require some degree of time and attention, timing is crucial in most cases. Giving sizable gifts under the current limits in order to reduce estate size may avoid a potential tax hit at a person’s time of death. Estate planning attorneys point out that this will only be possible if people give ample time for the planning process, pointing out that it is difficult to finish the process in any time less than a month.

A managing director of one of the nation’s largest accounting firms summed it up by saying, “My guess is that these are the best rules you’re going to get in your lifetime.”

Source: The Wall Street Journal, “No playing chicken with estate tax deadline,” Charles Passy, Oct. 2, 2012